A bill to ban councils borrowing from central government for commercial property investment is to be considered by the House of Commons.

Christopher Chope, Conservative MP for Christchurch, has published a private members’ bill following concerns raised over councils borrowing from the Public Works Loan Board (PWLB) to raise revenue for property acquisitions.

The bill comes just months after the government introduced a tightened investment code intended to discourage authorities from speculation in commercial property, without introducing an outright ban.

Chope told Room151: “What is happening is local authorities are using the PWLB powers and they are borrowing to get low rates of interest below those of the commercial sector to make commercial property purchases.

“If a local authority wants to build some council houses, or a sewage works, it is hard to say they shouldn’t be allowed to do so.

“But we should differentiate in legislation between investment relating to their core activities and more commercial ventures.”

As published, Chope’s bill demands that no council in England should be able to “borrow from the Public Works Loan Board for the purposes of commercial property acquisition or other purposes beyond the scope of the statutory duties of that local authority”.

In addition, it says that councils should be unable to acquire land, or property, outside their own boundaries, without the express permission of the authority in which it is located and the permission of the communities secretary.

Responding to the proposals, David Green, strategic director at treasury adviser Arlingclose, said: “If enacted, this would limit local authorities’ exposure to property market risks but would also constrain their ability to generate income.

“We don’t generally support additional restrictions, and their possible unintended consequences, believing that such decisions are usually best made locally.

“However, we understand concerns at the scale and rapid growth of direct property ownership.”

In addition to the provisions relating to property, the bill seeks to make it harder for councils to make investments aimed at providing a commercial return.

It says: “No local authority in England may invest in a commercial risk-taking enterprise without the approval of its council at a full meeting at which more than two thirds of elected councillors vote in favour of the proposal to make the investment.”

Chris Shepherd, director at public finance consultancy 31ten, said: “This wording feels a bit woolly, as local authorities may be supporting other initiatives that are non-statutory by investing in a commercial property asset, such as leisure facilities. Would they then have to argue that this falls under other remits?

“I am no lawyer, but I am unsure how this sentence sits with the general power of competence, a power available to local authorities in England to do ‘anything that individuals generally may do’.”

Last year, Labour MP Paul Flynn criticised Chope and his Conservative colleague Peter Bone MP for “abusing the system” by submitting more than 70 private members’ bills on the same day.

Chope’s latest bill, the Local Authorities (Borrowing and Investment) Bill 2017-19, will be debated by MPs at its second reading on 15 June, but is unlikely to make it onto the statute book.

Parliament’s website says: “Very few private members’ bills become law but, by creating publicity around an issue, they may affect legislation indirectly.”

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